China’s cotton policy punishes own mills

Chinese mills are losing out on market share to neighboring countries due to China’s policy of stockpiling, according to the International Cotton Advisory Committee (ICAC). As a result, the price of cotton is now higher in China than in neighboring countries.

The Chinese government buys cotton from its own farmers at guaranteed prices above the international market price. By supporting its local agriculture, the Chinese have produced a side effect of an uncompetitive price for local textile mills to the point where they are seeing their orders gradually migrate to Pakistan, India, Vietnam and Uzbekistan.

But the ICAC is especially concerned about the impact of massive Chinese cotton stocks on the world market, particularly since market forecasts show a downturn of 21% in the cotton trade for 2012/2013. Approximately 7.7 million tons of the white fiber are expected to be traded this year, while production is predicted to reach a record level of 16.39 million tons.

All eyes are now on the Chinese government, which purchased 55% of world cotton exports in 2011/2012. Any policy change due to declining global demand could again strongly destabilize prices.

China’s cotton policy punishes own mills

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